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  • D.P. Conway

Employee Retention Credit – Huge Benefit For Many Manufacturers

In 2020 and 2021, a lot of manufacturing companies lost a lot of money or went out of business. Most of these businesses took out PPP loans to help them keep their best workers. Once upon a time, a company that took out a PPP loan could not get the ERC. Later, that rule was changed, and employers can go back and get this valuable credit for 2020 and 2021. However, this credit should be calculated and claimed with care.

The Good

The good news is that employers can still claim the Employee Retention Credit (ERC) on amended payroll tax returns for qualifying periods, as long as they met the eligibility requirements and paid eligible wages during those times. Depending on the year, the way the law was written allowed employers with a big drop in gross receipts or a full or partial suspension by the government to get a credit on eligible wages up to either $5,000 per employee in 2020 or $7,000 per employee per quarter for the first three quarters of 2021. This can still be claimed by employers three years after the original deadline by making changes to their payroll tax returns.

The Bad

There is some bad news about the ERC, starting with the fact that there is still little guidance on how an organization can show that it fits into the safe harbor of suspending operations for at least 10%. Also, it is currently taking on average 6-9 months for the IRS to send out refunds. Lastly, Federal Income Tax returns must be changed to add back the credit amount to the wage expense in the year the credit was made, not in the year the credit was claimed or received.

The Ugly

In these uncertain times, there is still an "ugly" to deal with. Besides the suffering of the Pandemic, with its impact on people and business stability, employers need to be aware of bad actors in the ERC space. Many ERC companies are playing loose with the rules without applying eligibility rules. Under audit, the employers could be in trouble and be forced to pay back undeserved refunds with penalties and interest. In addition, with the ERC audit window being five years, and the amended tax return window being only three years, one has to wonder if the tax paid on these refunds could also be forfeited.

The Best Idea

Work with a professional firm, committed to upholding the law, not just in marketing language, but in your interaction with them. At ERC-Refunds work diligently to understand and document your situation, so we can qualify you for whatever quarters you deserve with confidence.

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